Wednesday, September 26, 2007

I'm Right and You're Wrong

I've been saying this for a while but it's good to see some positive publicity that speaks the truth.

Dallas has largely avoided the boom-and-bust cycle, which is one reason this market is on track to post the best returns on housing of any major U.S. city during the next two years.

So rock on Dallas!

Realtors Are Our Own Worst Enemies

Now Realtors are giving into terrible real estate market hype which is REALLY bad! Check out this email I just got from an agent representing a buyer on one of my listings. They made an offer, we countered and now the buyer is having “second thoughts” about raising his offer. Here is the agent’s email to me:

I just don't think my client will come up that high. He really feels it's a declining market. I would love to make this work too but we feel $XXX,XXX is a bit high. I'll let you know when I hear back from my buyer as to if he wants to come up. some. Thanks

Now I could get into how justified my clients asking price is (and it really is) but that’s not the point. The point is that we all know buyers think the real estate market is tanking but if Realtors start buying into the hype then we’re all in big trouble. So consider this a prime example of why the real estate market IS tanking. It’s because buyers aren’t even willing to pay market value for a home and their agents don’t have the wherewithal to educate them. Notice how the agent said “we” feel the price is too high. Not just her client, but the agent who should know the market!

The issues:

· Buyers want to buy below market value or else they move on to the next one.
· Agents aren’t properly educating their clients that not every property for sale is a foreclosure or short sale so they can’t expect sellers to give away their homes for lower than market value.
· Agents blindly let their clients lead them from house to house making offer after offer that is not accepted. After 4 to 6 months of searching the buyer decides to stay in his lease and renew or stay in his house until the market “gets better”.
· Buyers and sellers think they know the real estate market better than the experts which should be local Realtors.
· Local Realtors are letting their clients tell them how bad the market is and Realtors aren’t standing up for themselves and educating their clients.

My question to the buyers out there is what are you going to do when the market gets better? There will be less inventory and chances are you’ll be paying more for the home than if you were to buy it now. So you are willing to potentially pay a premium for the same home years from now rather than to buy it at market value right now? Makes perfect sense to me. (Sarcasm)

My theory on the real culprit behind this? Immediate equity. Too many home improvement shows have shown how young couples live in a home for 2 years and make $100,000 without drastically improving the home. That has never been the case in Dallas and never will be. So I think the buyers are afraid of the commitment a home offers. The average person needs to live in the home for at least 3 years and put at least 5% down (or 5 years if they put nothing down) if he or she wants to sell and break even. But buyers don’t want to hear this. Sellers have put their home on the market after living in it for 2 years with very little equity and can’t sell it at a premium and get stuck. Buyers are catching on to this so they don’t want to “overpay” since they may or may not want to sell within 2 to 3 years and if they “overpay” then they won’t have immediate equity just in case they need to sell and get out.

Thursday, September 13, 2007

Dallas Thinks; Therefore It Is

I admittedly don’t keep track of mortgage rates regularly. (I let my client’s lenders handle that part of the transaction) But while having lunch with a lender friend yesterday he said he is closing deals at interest rates under 6%! Yet people still want to perpetuate what a terrible real estate market we are in? It is getting more and more frustrating to repeat the same information to my clients here in Dallas trying to educate them about the real estate market. I guess I’ll continue to sound like a broken record by repeating the 2 main reasons why it’s a good time to buy.

1. Rates are amazingly low.
2. Inventory is great meaning buyers have a lot of homes to choose from. If you don’t want to get into a multiple offer situation then you don’t have to. There’s plenty of fish in the sea.

So I ask my buyers, “What exactly are you waiting for?” and here’s what some of them are saying followed by my official response.

“Rates might go down!” – Uh, like to what? 4.5%? I doubt it. Some people might be able to get a 5.5% interest rate but if it goes any lower than that I will very surprised. But think about the opposite. If you wait too long you might be looking at a 7% interest rate. If you want to play the wait and see game then you might get burned.

“Inventory is high and I keep hearing how bad the real estate market is so sellers should be negotiating down off their asking price!” – Do you know the sellers financial situation? In all price ranges sellers move for different reasons. If you happen to get lucky and make an offer on a home where the owners are getting a divorce and want to ditch the home for next to nothing then congrats. But just because there is an abundance of inventory don’t expect EVERY seller to give away their home to you because YOU think the real estate market is bad. And what’s the alternative? Wait until there is a small amount inventory on the market? That means multiple offers and paying top dollar. So let me know how that works out for you.

“I keep hearing about all of the foreclosures and pending foreclosures. Find me one of those!” – This is my pet peeve and I could spend an hour answering this but the quick answer is that there are literally THOUSANDS of investors combing the Dallas real estate market for foreclosure deals. So when a true foreclosure deal comes on the market there are multiple offers on the property for over list price and the investors are paying in cash which means they can close quickly. But your typical buyer doesn’t want to pay list price (they want to negotiate) and are financing their loan thus needing at least 20 days to close the loan. Which offer do you think the banks are going to accept? My advice is get over the foreclosures and look for a home you want to live in, not the deal of the century.

People don’t realize real estate is local and not dependant on other states. North Texas has been and is doing just fine. But the national media attention has crept into our minds and we can’t shake it. While pondering the phenomenon we are experiencing with everyone and their dog believing the real estate market is bad, I thought of a real estate analogy. There is a house in your neighborhood. Just your average home and the owners keep to themselves. Not many neighbors have seen the inside of the home but it looks to be in average condition. So one day the neighborhood gossip sees the For Sale sign in the yard and the owners packing outside. She skips over to offer her goodbyes and they politely invite her into their home. Meanwhile she sees a couple stress cracks over a few door and window jambs. “The home obviously has serious foundation problems and I think I smelled mold too!” she says to anyone who will listen. Then they tell someone who tells someone else – you get the point. Even when people are looking at the home neighbors feel the need to tell them about the problems the home has and therefore the home lingers on the market and sells for pennies. But guess what? They actually just brought down their own property values by spreading these untruths.

Dallas has bought into the woes of California, Las Vegas and Florida and is actually hurting itself by perpetuating the bad real estate market story. Our city does NOT have foundation or mold problems yet the terrible rumors persist and only time will tell how our own foolish beliefs will affect our real estate market. In the end we only have ourselves to blame.